Image courtesy of 123rf.com

During the earnings call in January 2023, Elon Musk had no qualms about Tesla’s challengers. Noting that Chinese automakers work the “hardest and they work they smartest,” Musk correctly identified the unfolding global EV landscape:

“If I were to guess, it would probably be some company out of China as the most likely to be second to Tesla,”

Tesla’s main counterparts in China are BYD and Li Auto, with the former steadily rising to global EV dominance. Warren Buffett’s Berkshire Hathaway saw BYD’s prospects early on in 2008, purchasing $232 million worth of BYD shares, representing a 9.9% stake in the company.

As of February’s filing, Berkshire Hathaway’s portfolio is exposed to 8% of BYD Co. Ltd (BYDDF) stake, at present market price of $25.51 per share, totaling to $2.23 billion. Although this is only 0.6% of the portfolio, it is greater than Buffett’s zero exposure to Tesla (Nasdaq: TSLA).

Given that the legendary investor is known for its value-oriented approach, will Mr. Musk be proven wrong? Instead of having a Chinese EV company being second to Tesla, could it be the other way around?

BYD’s EV Bid: Which Company Produces More Cars in Which Markets?

On April 1st, BYD Company Limited (BYDDF) delivered its year-to-date March production and sales volume as a non-mandatory report. Combining hybrid and pure EV vehicles, the company sold 626,263 cars, of which 48% were battery-only. This is a 13.44% year-over-year uptick.

For comparison, in Q4 2023, Tesla delivered 484,507 vehicles. This is a 38% YoY delivery increase to 1.81 million for the full year. During the same period, China’s BYD managed to outpace Tesla to 3.02 million, accounting for both plug-in hybrids and pure electric. For Q1 2024, Telsa’s delivery number was significantly lower than expected, with approximately 387,000 vehicles.

Moreover, BYD’s hybrid approach, similar to Toyota’s, has a broader market appeal due to lower pricing and less reliance on supercharging infrastructure. That said, BYD’s market is primarily confined to mainland China, accounting for only 8% of deliveries overseas in 2023.

BYD Lagging Behind Tesla in Europe, While Tesla’s US Market Share Secured

In Europe, BYD’s EV market share is only 1.1%, with plans to expand this stake to 5% on the back of the new plant in Szeged, Hungary. This milestone BYD entry into the EU will have a production capacity of 150,000 cars per year when it goes online by the end of 2025. 

Depending on market demands, its capacity could double to 300,000 EVs. On the other hand, Tesla’s Gigafactory Berlin-Brandenburg aims for 1 million EVs per year and millions of battery cells. 

In the meantime, Tesla is dominating the EV market share in Europe, with Model Y and Model 3 occupying the top two sales spots, followed by the Audi Q4 e-Tron. 

(Click on image to enlarge)

Top twenty EV sales in Europe as of January 2024. Image credit: Autovista24 via EV-volumes.com data.

Moreover, Tesla’s EV market dominance in the US seems secure. BYD’s CEO of BYD Americas, Stella Li, confirmed to Yahoo Finance in February that the company has no plans to enter the US market. Instead, it will support its efforts in Mexico.

Li also noted that the EV market in the US is insufficiently developed, contrasting its 7% adoption to 35% in China. Biden’s Inflation Reduction Act erected barriers to Chinese EV automakers by limiting eligibility for green tax credits if the materials and components are sourced in China.

Overall, with Tesla US market share fluctuating between 65% – 55%, this translates to more Tesla tailwinds in the future despite being one of the most shorted stocks in 2023. Notably, Tesla’s “Redwood” priced at $25,000 should be the next EV adoption milestone in 2025. If this launch succeeds, the US could significantly ramp up its EV adoption and align with China’s.

TSLA and BYDDF Price Targets

Over a one-year period, TSLA and BYDDF shares are relatively on equal footing at -15.5% and -12.6%, respectively. The two stocks underwent more significant divergence this year, with TSLA going down -33.7% vs BYDDF rallying up to -4.1%.

From its 52-week low price of $152.37, TSLA stock is now 8% above at $164.84. The average TSLA price over that period was $222.82. Twelve months ahead, 32 analyst inputs pulled by Nasdaq position the average TSLA price target at $201.09, a potential 22% boost.

For BYDDF, the average price target is $33 vs. the current $25.51 per share. Since BYDDF is more cheaply priced and, therefore, easier to move, this would give investors a potential 29% return.

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